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15 February 2017 • 10:27am

Every year more families are paying Inheritance Tax. But there are perfectly legitimate ways to reduce your liabilities

More people than ever before are having to pay inheritance tax (IHT) after the death of a loved one. One reason is inflated UK house prices, which are pushing more estates over the tax threshold. Yet by taking expert advice, you could see to it that your family keeps the tax to a minimum or even eliminate it altogether.

HMRC figures show that the amount of IHT taken by the Government has increased every year since 2009/10, when it totalled £2.3bn. By 2015/16, the last tax year, it had doubled to a record £4.6bn. The number of families affected by the tax has grown likewise, from around 15,000 in 2009/10 to an estimated 40,000 or more in 2015/16, according to the Office for Budget Responsibility. This is largely down to rising property prices.

Not just for the rich

Some think, mistakenly, that IHT only affects the very rich. But even with no other assets, simply owning the family home can take you over the £325,000 IHT threshold. From April 2017, a new ‘family home allowance’ starts to be phased in, so that married couples will effectively have an allowance of £1m; but you will have to wait until the 2020/21 tax year for it to eventually reach this level.

Even if you move abroad and become non-resident in the UK, your overseas assets continue to be liable to IHT if you remain domiciled here. Anything below the IHT threshold can be passed without this tax being applied. However, anything above it is taxed at 40pc, subject – and this is the important part – to various exemptions.

Make a Will

The first step in making sure you don’t overpay on tax is to make a Will. Without one, intestacy rules will determine how your assets are distributed. “A carefully drafted Will can ensure that your estate passes to your beneficiaries in a tax-efficient manner and in the way that you want,” says Tony Müdd, tax planning expert atSt. James’s Place Wealth Management. “You should review your Will regularly, and especially after a change in your financial or domestic circumstances.”

Gift your assets early

You can reduce your IHT bill by moving assets out of your estate before death. An effective way of doing this is gifting, which can take different forms. One is an ‘exempt transfer’, where the gift becomes exempt from IHT on death. Examples include transfers between spouses or gifts to charity.

Gifts made under annual gifting allowances are also exempt transfers . The rules permit exempt gifts of up to £3,000 a year, either to a single person or split between more than one person. Individual smaller gifts of up to £250 a year – as many as you like – are also exempt. You should keep a record of what was given to whom, and when, to make your executor’s task easier.

Another variation is the ‘potentially exempt transfer’, where the amount falls outside your estate as long as it is gifted seven years before your death. There may be reduced levels of relief given for gifts made less than seven years from death.

Gifts made into certain types of trust are immediately subject to IHT, if the gift exceeds the tax-free threshold, but at a reduced tax rate of either 20pc or 25pc, depending on who is paying the charge. However, as this aspect of tax planning can be complex, it’s always important to take professional advice.

Invest tax-efficiently

Investing in business relief schemes and in the Alternative Investment Market can also help to minimise IHT. Müdd explains: “These are generally high-risk investments, and should only be made by those who understand the risks involved.”

Seeking expert Inheritance Tax planning advice could potentially save your loved one’s thousands of pounds.This is just one of the important topics being covered at the Telegraph Investment & Tax Planning Spring Seminars taking place across the UK, in conjunction with our recommended partners St. James’s Place Wealth Management.

The value of an investment with St. James’s Place will be directly linked to the performance of funds selected and may fall as well as rise. You may get back less than the amount invested. Equities do not provide the security of capital associated with a deposit account with a bank or building society. The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.

The value of an investment with St. James’s Place will be directly linked
to the performance of the funds selected and may fall as well as rise. You
may get back less than the amount invested. Equities do not provide the
security of capital associated with a deposit account with a bank or
building society. The levels and bases of taxation and reliefs from taxation
can change at any time and are dependent on individual circumstances.

Telegraph Media Group Limited is an appointed introducer to St. James's Place
Wealth Management plc which is authorised and regulated by the Financial
Conduct Authority.